Business sustainability is advancing from the greenwashing and branding to, very recently, business imperative as shareholders demand, regulators require, and companies report their sustainability performance. Sustainability has become economic and strategic imperative with potential to create opportunities and risks for businesses.
Business sustainability has gained considerable attention of investors, regulators, standard-setters, business organization, academics, and the accounting profession in recent years. Business sustainability focuses on achieving financial economic sustainability performance to create shareholder value and desired financial returns for shareholders while securing social and environmental impacts. The primary purpose of business sustainability is to create shared value for all stakeholders from shareholders to employees, customers, suppliers, creditors, society, community, and the environment.
The ever-increasing erosion of public trust and investor confidence in the sustainability of large businesses, the widening concern about social responsibility and environmental matters, overconsumption of natural resources, the global government bailout of big businesses, and the perception that government cannot solve all problems of businesses underscore the importance of keen focus on sustainability performance, risk, and disclosure.
There have been considerable efforts to encourage business organizations to pursue profit-with-purpose goals and for investors to integrate financial economic sustainability performance (ESP) and nonfinancial environmental, ethical, social, and governance (EESG) sustainability performance into their strategic and investment decisions. The nonfinancial EESG sustainability performance is often summarized as environmental, social, and governance (ESG) sustainability performance with ethics integrated into other sustainability dimensions.
Business sustainability has been defined in many ways. It has been defined from agency/shareholder theory as the process of creating and maximizing shareholder wealth by aligning management interests with those of shareholders. In this regard, the main purpose of business sustainability is to enable management to focus on short-, medium-, and long-term strategic decisions to achieve high performance in creating shareholder value. Business sustainability can be defined from the legal and compliance view as the process of complying with all applicable laws, rules, regulations, and standards including those related to the environment and society in achieving all five EGSEE dimensions of sustainability performance. Until recently, the terms “business sustainability,” “corporate social responsibility” (CSR), and “triple bottom line” (focusing on profit, people, and planet) have been used interchangeably in the literature and authoritative reports.
However, the concept of business sustainability is broader than just CSR and thus a more comprehensive definition of sustainability has been developed.
The term CSR has evolved over the years. Originally, CSR referred primarily to philanthropy, good community relations (in a general sense), and employee engagement activities. While many researchers and companies still use CSR in that sense, it has evolved to a more holistic meaning—one where stakeholders are emphasized over shareholders, and corporate performance is assessed against EESG factors of performance, risk, disclosure, and their related metrics. The challenge is that companies and academics use both definitions interchangeably today. Sustainability factors are more specific, though they are also subject to different interpretations as sustainability includes financial economic sustainability and nonfinancial EESG factors. As sustainability truly becomes embedded into strategic plans and core business operations, a more standard and uniformly accepted definition and factors of sustainability will evolve.